Tag Archive: audit committee chair

What to Look for in an Effective Audit Committee Chair

Published by

Paula Loop

The entire board relies on the hard work of the audit committee to meet its overall objectives. But audit committees today are faced with the heavy burden of regulatory mandates and growing investor expectations. Workloads are increasing, and they have to oversee more complex areas. Many audit committees are asking whether they have the right approach to meet the demands.

One way to ensure the effectiveness of the audit committee is to have a strong chair. Good leadership and effectiveness go hand in hand, and a strong chair can get the most out of the committee members. By choosing a strong leader for this essential role, your entire board will be able to have greater confidence that the audit committee is on top of the issues.

So what makes a strong audit committee chair? Audit committee chairs need to have experience, healthy skepticism, integrity, and strong communication skills. And to be a truly effective, he or she has to take the time to really work on the committee agenda and make sure meetings run well. They also need to be able to effectively coordinate with other board committees, such as the risk and compensation committees.

Here are six other attributes that I have observed in great audit committee chairs:

  • Highly experienced: Strong audit committee chairs need to have a good understanding of the business, its risks, and controls. They also know what topics to elevate to the full board, and when to do so.
  • Professionally skeptical: They’re willing to provide an independent point of view and are intellectually curious. They will look for additional information when they aren’t happy with the answers they get frommanagementand
  • Possesses integrity and confidence: They promote a strong “tone at the top” for the company and for the committee. They also need to ensure that all elements of the charter are being addressed.
  • Organized and proactive: They’re able to prioritize the most important items on the agenda. They’re good discussion facilitators and know when to cut off low-value discussions.
  • Strong communication and interpersonal skills: They provide clear updates of issues to the full board. They’re not afraid to ask difficult questions and have uncomfortable conversations with members of management, service providers, and even other committee members.
  • Willing to devote the time and energy: Chairing the audit committee requires a big time commitment—agendas are denser, filings are more voluminous, and compliance is more time-consuming. So the chair has to be ready, willing, and able to dedicate the time to the job. Strong chairs take the time to develop the agenda and effectively execute meetings. They also make themselves available to management and other board members. The time commitment of the audit committee chair goes well beyond just the meeting time dedicated to that committee, not to mention meetings of the full board.

Strong audit committee chairs understand that an effective audit committee means more than simply meeting stock exchange composition requirements. They recognize the importance of having a diverse committee made up of members with the right experience, expertise, and both hard and soft skills. They keep the committee refreshed and use the assessment process to ensure that all committee members are functioning effectively.

Having a strong audit committee chair at the helm can help ensure that the audit committee not only keeps up but excels.

For more on this topic, read the latest in our Audit Committee Excellence Series, Audit committee effectiveness: practical tips for the chair. You can also find more audit committee resources on our website.

How Can Companies Improve the Usefulness of Disclosures to the Investor Community?

Published by

In March, the National Association of Corporate Directors, KPMG’s Audit Committee Institute, and Sidley Austin co-hosted the latest meeting of the Audit Committee Chair Advisory Council. Delegates were joined by analysts from Moody’s Analytics and Morgan Stanley, as well as leadership from Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB). The group discussed how investors and ratings agencies use financial statements in their assessment of corporate performance, the audit committee’s role in helping to ensure the quality of the company’s financial disclosures, and ongoing FASB and PCAOB projects.

As detailed in the summary of proceedings, the discussion addressed several factors that can diminish the utility of financial disclosures, including high volume as a result of duplication, “boilerplate” disclosures, and the timing of releases. Dialogue yielded the following suggestions for how companies might improve the usefulness of disclosures to the investor community:

  • Expanded reporting at the business unit, segment, or geography level. “We want to see performance data at a more granular level in order to develop a view of the company’s future growth prospects.”
  • Providing data that shows trends over multiple years. “Understanding trends over 2, 3, 5 years tells a fuller story. One of my pet peeves is when a company’s MD&A includes comparative data only from the previous year. Investors want more context.”
  • Using more charts and visuals. “Visuals can deliver a wealth of information using very little real estate in the financial statement.”
  • Including more forward-looking disclosures. “Investors and rating agencies are trying to assess and project future valuations of the company. I’d be in favor of more safe harbors [in this area] if it would encourage companies to offer more forward-looking information.”

For the full day’s discussion and proposed council action items, click here to read the summary of proceedings.